Fringe Benefits Tax (FBT) year-end March 31, 2019 is fast approaching, raising questions around the lodgement process and whether or not FBT needs to be paid.
BDO's FBT Snapshot provides a hit list of topical areas that have experienced change or increased ATO compliance activity. Mindful consideration of these specified areas when preparing your lodgement will be critical to avoid unwanted attention from the ATO.
Safe Harbour provisions
There is significantly increased ATO compliance activity in relation to the private use of exempt vehicles.
The ATO has provided the following guidelines in PCG 2018/3, detailing circumstances where they will accept the minor, infrequent and irregular conditions for exempt vehicles:
- An eligible vehicle is provided to a current employee
- The vehicle is provided to the employee for business use to perform their work duties
- The vehicle had a GST-inclusive value less than the luxury car tax threshold (at the time the vehicle was acquired)
- The vehicle is not provided as part of a salary sacrifice arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle
- There is a policy in place limiting the private use of the vehicle and obtained assurance from your employee that their private use is limited
- Your employee uses the vehicle to travel between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip
- For journeys undertaken for a wholly private purpose (other than travel between home and place of work), the employee does not use the vehicle to travel:
- More than 1,000 kilometres (in total)
- A return journey that exceeds 200 kilometres.
► Employers may still be eligible for the FBT exemption where the safe harbour provisions are not adopted but they need to maintain documentation and policies to demonstrate private usage is minor, infrequent and irregular.
Fleet cars and log books
Where employers have a fleet of 20 or more cars, PCG 2016/10 allows employers to apply an average business use percentage for vehicles with missing log books where:
- The employer has valid log books for at least 75% of their qualifying cars
- Cars cannot be used predominantly for private purposes
- There is a requirement for employees to maintain log books
- The employers selected the make and model of the car (not the employee)
- The car has a value less than the relevant luxury car tax threshold
- The car is not provided as part of a salary sacrifice arrangement.
Minor, infrequent and irregular
When determining if entertainment benefits provided are minor, infrequent and irregular, careful consideration needs to be given to the circumstances of the provision of each benefit provided.
The value of identical and similar benefits needs to be aggregated to assess if they are minor. A $300 minor benefit threshold does not strictly apply when aggregating these benefits, however ATO guidance is that aggregated value is not substantial.
No clear guidance has been provided by the ATO as to the number of times a benefit can be provided and still be infrequent and irregular. However, the more unexpected the benefit is, the more likely it will qualify for the exemption.
► Example: an employer providing non-salary packaged meal entertainment to an employee 10 times at an average cost of $175 during the FBT year, would unlikely meet the minor benefits exemption. While each instance in isolation could be considered a minor, infrequent and irregular benefit, when aggregated the overall cost could be considered substantial (not minor), frequent and regular and therefore not exempt.
The ATO and other government agencies are continually developing data matching capabilities and using the information to confirm that consistent data is being provided to authorities.
- Employee contributions - the ATO will data match employee contributions disclosed between FBT returns and income tax returns to ensure employee contributions are being included in taxable income
- Taxable value of benefits included in payroll tax calculations - the Office of State Revenue has queried an employer about the taxable value of fringe benefits omitted from payroll tax calculation where they have lodged an FBT return with the ATO
- Reportable benefits - benefits with a taxable value of more than $2,000 for an individual are required to be disclosed as reportable benefits on PAYG payment summaries. The ATO conducts data matching to ensure employees are disclosing these benefits in their income tax returns.
AUDIT HOT SPOTS
Payments for employee home internet costs
With an increasing number of employees working from home, the ATO has increased their focus on the FBT treatment of payments made for/to reimburse internet costs.
Minor benefit exemption is likely to be difficult to apply if the payments are made regularly (e.g. monthly) as these payments could be considered frequent and/or regular.
The basis of payment needs to be considered in this instance.
► Example: entire cost/work-related cost and the extent that the otherwise deductible rule applies.
Benefits received by shareholders and beneficiaries
Where shareholders and beneficiaries are also employees, careful consideration needs to be given to determine if benefits are provided in their capacity as shareholders/beneficiaries or in their capacity as employees. Some of the factors to consider are:
- Is the benefit connected to employment duties?
- Nature and extent of trading activities of the business
- Nature of the benefit
- Was cash remuneration paid?
- Can the business claim a tax deduction in relation to the benefit provided?
- Extent of control of the shareholder/beneficiary
- Is the benefit provided to arms length employees?
Employer liability for third-party benefits
It is important to be aware of third-party benefits. A third-party benefit arises where a supplier, a client or a contractor of the employer's business provides a benefit to one or more of the employer’s staff. The FBT liability usually arises where there is employer involvement in the benefit arrangement.
► Example: employer selecting staff members to attend a function being provided by a third party. FBT exemptions can be applied in respect of third party benefits.
Declarations and compliance paperwork
When the ATO conducts a FBT return review, they will confirm the following:
- Signed declarations are obtained prior to the due date of the FBT lodgement
- Relevant signed declarations have been provided in relation to an exemption or reduction claimed
- Correct declaration forms are used.
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